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Demographics: Think About Teens

A Wall Street economist says watch where the kids spend their dollars to find investment ideas.

June 5, 2006

A new generation, between ages 10 and 19, has garnered little attention from investment professionals -- but it should and it will. Everyone focuses on the impact aging baby boomers are having on society -- and the financial markets. But one of the best ways to make money in the stock market is to pay attention to things the crowd is overlooking. And the rapid growth of the youth population in the U.S. is being largely ignored. Fact: the 10-to-19 age cohort in the U.S. is actually bigger today (42 million people) than the 65-plus age group (37 million).

Of course, young people have less money to spend than their parents and grandparents. But they have more than you might think. Merrill Lynch economist David Rosenberg says this group of people -- part of Generation Y -- spends around $120 billion annually. For better or worse, young people are adopting "adult-like behavior at increasingly early ages," he says. Median income is $1,500 among 12 year olds and $4,500 among 17 year olds. "So the key for investors is to focus on where these 42 million Americans spend their time" -- and their money, Rosenberg says.

That's not too difficult. Surveys back up what parents already know. They hang out at malls, eat fast food and shop at discount stores. "Their top-purchased items are clothes, CDs, electronics, video games, jewelry, entertainment, fast food, soft drinks, cosmetics and magazines," Rosenberg observes, adding that "teens are actually very sophisticated in terms of their shopping selection." One surprise: Their spending is influenced more by advertising in magazines than in other media sources, such as television, radio and the Internet.

Stores and restaurants aren't the only beneficiaries of these hordes of young people. For-profit education companies should thrive, too. Almost 90% of 17-year-olds plan to go to college. By comparison, only 30% of people over 65 ever attended college and less than 60% of people between age 25 and 54.

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The ethnic group to watch is Hispanics. Six million 10-to-19-year-olds are Hispanic today. And Hispanics in this age group are increasing at six times the rate of the overall age group.

Where do the 10-to-19-year-olds live? The South is the main beneficiary, while the Northeast is the big population loser, Rosenberg reports. The U.S. has far more young people than other developed nations. In fact, there are more 10-to-19-year-olds in the U.S. than in Japan, the United Kingdom, Germany and France combined, so don't think only global brands are worth following. Also, these young people will be working for decades to come, paying money into Social Security and Medicare -- and making the retirement and health-care time bomb easier for the U.S. to defuse than for other developed economies with aging baby boomers. All this should counter some of those fears that as the boomers retire and turn their investments into cash income, the stock market will tank.